The Ethics of Wholesaling Real Estate

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If you’re new to my channel my name is RJ Bates III. Myself and my partner Cassi DeHaas are the founders of Titanium Investments.

We are nationwide virtual wholesalers and on this channel we share EVERYTHING that we do inside our business. So if you’re looking to close more deals - at higher assignments - anywhere in the country… You’re in the right place.

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Chapters

• 0:00 Distressed Seller's Wholesaler Nightmare
• 5:36 Communication Breakdown and Seller Fears
• 10:14 Confronting the Unethical Wholesaler
• 14:31 Industry Abuses and Regulatory Threats
• 19:03 Ethics in Acquisitions and Dispositions
• 21:27 Respecting Partners and Improving Standards

Transcript

Speaker 1: 0:00

So the other day during the titanium university implementation call uh, relatively newer member, uh, he's been in the group for a couple of months now. He he raised his hand, it was his turn to go and he was talking about a highly motivated seller that he he got a lead through a PPL service called the seller. That he got a lead through a PPL service called the seller, and the seller was already under contract with another real estate investor who actually ended up being a wholesaler, did not represent themselves as a wholesaler, and this seller was highly concerned about what was taking place because she had not heard from the wholesaler in over two weeks, and so she was in a financial distress situation and she's now under contract with somebody. She can't get them to respond and she doesn't know what's going on inside of her real estate transaction. Now, taking ourselves out of the place of being a wholesaler and putting ourselves into the seller's shoes and understanding their point of view, imagine the stress that that brings on your life, where you are in a financial distress situation pre-foreclosure tax delinquency, whatever it is and you believe that you have found your solution by signing a contract with someone that has represented themselves as an end buyer, and now you can't communicate with them. Now putting ourselves back into the wholesaler seat.

Speaker 1: 1:45

Imagine how frustrated we get when we sign a contract with a seller and we get no communication. We refer to it as they're ghosting us. We can't get them to answer our phone calls, we don't know what's going on. It becomes extremely frustrating. We start thinking about worst case scenarios. Right, someone else must have come along and offered them more money. They might not want to move forward with me. Should I file a memorandum? And we start somewhat panicking internally. The emotions start running wild. Now we're running a business. We should have multiple transactions going on where our livelihood is not contingent upon that one deal making it to the closing table, but in a motivated seller situation, that one deal could make the difference in their financial future, especially in this circumstance where this elderly seller was in a financial distress situation. She's not receiving any communication from this other wholesaler.

Speaker 1: 2:54

So the TU member started doing research. He found that the property was listed on Facebook Marketplace. He found that the property was listed on InvestorLift, along with 20-plus other properties that were listed on InvestorLift and Facebook Marketplace. He tried calling this wholesaler. Zero communication back, no return of phone calls, no text messages. There was no indication from the TU member that, hey, I'm calling to have an uncomfortable conversation. This wholesaler, quite frankly, didn't even know if the TU member reaching out was an in-buyer trying to someone to buy this property.

Speaker 1: 3:37

Now, the other thing that stood out was the purchase price on this property did not and would not work for an end buyer, and this is how motivated this seller actually was. This seller was actually willing to sell the property for $40,000 less. Well, it was either $35,000 or $40,000 less than what this wholesaler had it under contract for. That's how much this seller was like. Listen, if you can resolve the situation with this other person that I no longer want to do business with, I am willing to sell my property for this much less than what I'm under contract with them. Now, that is screaming motivation. Now, as the TU member was telling me the entire story, essentially their actual question was what should I do and what can I do to help this seller, which? That is the culture and the mindset that we have at Titanium University. Right, sellers first solve their problem, then provide a great deal to our end buyers and take care of them. Now we were able to. You know, obviously we already had the Facebook marketplace. The investor left.

Speaker 1: 5:00

I was actually able to get this wholesaler to call me back during the implementation call, so everybody inside of TU actually heard this conversation go down. I answer the phone. Guy says hey, I was just returning your phone call. I'm like hey, you have a property under contract here in Texas. The seller had reached out to us, filled out a form on our website, we got the lead, we talked to her. She's extremely nervous and scared because of the lack of communication and I was really just calling to see if there was a way that we could figure out how we could take care of this seller. Now I had full intentions of making an offer to this wholesaler which I thought, quite frankly, it was not by the permission of the TU member, but I knew that he would be okay with it. Going back to, this is the culture that we have at TU I was going to offer this wholesaler $5,000 to just kind of walk away from the deal after an explanation.

Speaker 1: 6:10

But, as I'm explaining what's going on and the fact that the conversation with this seller which you know, who was elderly, financially distressed, if this wholesaler did a halfway decent job during acquisitions he would understand her situation and the fact that she's scared and nervous. I mean, majority of people would kind of be like, oh, wow, that's horrible. Well, you know, let let me talk to the seller, let me take care of this situation. But that was not his response whatsoever. In fact, it was the opposite. It was it was listen, I have the property under contract, I control the contract. If you have a buyer, we can work together. Otherwise, we don't have anything to talk about.

Speaker 1: 7:03

So I was kind of like all right, well, let's just set the emotions aside. Okay, we have a nervous seller and again he's like listen, I don't have any reason to talk to you, which technically he is correct. He had no obligation to continue the conversation with me, but I'm not coming from a place of I'm trying to steal your deal or I'm not name calling or anything like that. And he got very aggressive and I'm like listen, man, the seller is upset, like you need to back down on the attitude right now. And I'm like listen, man, the seller is upset, you need to back down on the attitude right now and we need to take care of this seller.

Speaker 1: 7:40

I see that you have quite a few properties listed on InvestorLift and on Facebook Marketplace. You've had this for two weeks. It's not selling, and the reason why it's not selling is because the numbers don't work. The purchase price is too high for an end buyer, it doesn't underwrite correctly, the seller's willing to sell the property for less, but she doesn't want to work with you anymore due to the lack of communication.

Speaker 1: 8:06

And so again, this wholesaler is faced with the reality of the situation and, instead of embracing what I'm saying and putting the seller first, he decides he's going to double down on himself and the controlling interest that a signed purchase agreement gives us as a wholesaler. And this is the issue that we run into when we focus on the rights that we have today as a wholesaler. Those rights will inevitably be taken away from us in the future with regulations because of these types of actions. His response was if you don't have a buyer, we have nothing to talk about and I'll go file a memorandum on the property right now. Now, again, I don't understand the thought process or the reasoning as to why he would want to one, be aggressive with me when I'm trying to reach out and offer a solution. Two, why would he immediately want to jump to leveraging a tool like a memorandum of contract, which is there to protect buyers when something goes wrong in the transaction, not when you do a poor job of a wholesaler and you can't sell a property to then make sure you still get a payday by filing a memorandum. This is the issue and this is the reason why, as an industry, we are being attacked. This is why if you ask myself, jerry Norton, any other industry leader we believe in the future, almost each and every state will have some form of regulation against wholesaling. Because of this attitude, this arrogance and this lack of keeping in front of us what the most important thing is, which is taking care of sellers and making sure that deals make it to the closing table for the right reasons, not making sure that you get paid because you signed a contract for too high and then filed a memorandum of contract to protect yourself. That is what is going to cost us this beautiful thing that we have right now.

Speaker 1: 10:22

So as we continued the conversation, it got pretty heated and I'm not going to lie. Some verbal jabs were thrown at each other. Quite frankly, I was just trying to get the man to calm down so we could at least have a conversation. The adrenaline was pumping and it led to, as I was trying to get him to allow me to speak, he hung up on me. He refused to answer any phone calls moving forward.

Speaker 1: 10:52

And now it's a highly uncomfortable situation for the TU member that's involved in this transaction, because the seller is like listen, I need someone to help me and I need someone to take care of me. Like there's still been zero communication. This has been days, right, I mean almost a week at this point, actually, it might be close to a week Zero communication still from the wholesaler. So the seller, at this point, is facing three weeks of zero communication. Okay, I told the TU member I give you full permission at this point. Sign a contract with a seller, let's try to get this taken care of. I doubt title's been opened, I doubt the memorandum's been filed and I do not believe that this wholesaler is going to take care of this seller. And our obligation is to do each and everything that we can possibly do to take care of this seller, otherwise she literally stands to lose her property. This is the issue that we are facing and why I wanted to talk about the ethics of wholesaling today, because this is one example, but it's happening across our country. It's happening inside of communities where it's literally taught that this is how you're supposed to do business as a wholesaler. It's why we're being attacked as an industry.

Speaker 1: 12:30

Today, another TU member was talking about a property that he has on a contract. He already has the property assigned. He already has non-refundable EMD. We already have clear to close. But the issue is the seller is now ghosting. Now we don't know the reason why the seller is ghosting. Seller could be ghosting because something happened in their life. Maybe it was a health emergency, a disaster happened, we don't know. Could also be that the seller is ghosting because he has decided to go with someone else, sell it for a higher amount, sign another contract and hoping that this will never come back on them.

Speaker 1: 13:10

This would be an appropriate time to leverage the tool of filing a memorandum to protect yourself as a wholesaler. We are a for-profit organization so it is our right and our responsibility to protect ourselves. But in the scenario of this other wholesaler that made a decision to not communicate with the homeowner for three weeks, have the property improperly underwritten? Where it is not a wholesale transaction, it does not make sense for an end buyer and is receiving no offers, does not have the deal signed, does not have non-refundable earnest money deposited, filing a memorandum because I placed a simple phone call saying hey man, can we figure out how we could help this homeowner? That, to me, is a misuse of the tool For all the people that file a memorandum immediately after getting each property under contract again.

Speaker 1: 14:08

If you are not releasing those memorandums, it's an improper use of the tool. It's why states like Texas now are basically eliminating memorandums where they're going to be useless Because they've been misused and abused by mainly the real estate investing industry, and a lot of that falls on the shoulders of wholesalers. Lot of that falls on the shoulders of wholesalers. We have to do better as an industry and have better ethics and better processes inside of our businesses. This starts with transparency and authenticity. If you can actually just call a seller and tell the seller the truth, then it makes a massive difference. This is how you don't end up with sellers wanting to back out of contracts because you told them the truth up front. The fact that we have people going out and doing novations on properties without telling them that they're going to do a novation, that's a problem. The fact that we have people that are following memorandums on properties that are wholesaling when they don't have end buyers and they're improperly using the tool. These are issues.

Speaker 1: 15:18

This is also going back to the reason why I am adamant against the fake finance department and the fake underwriters. It's all just a barrier to entry to you lying and abusing the power that we have to manipulating sellers. If your whole business is based on a lie and a fake foundation, then it's going to spread throughout everything that you do. There's a consistent theme inside of Titanium University where we don't believe in lying. We don't believe in fake finance departments, fake underwriters. We don't believe in manipulating sellers with memorandums. We don't do those types of things.

Speaker 1: 16:05

Is everybody perfect? No, the community has grown to a large amount. I'm sure there's someone inside of TU doing things that I don't agree with, but for the vast majority, that is the culture that we have. It's the culture that I want to spread throughout the wholesaling industry. But in order to do that, we have to start understanding what our role is inside of the industry itself and who we serve and how we help them. This is why, when I talk about using the closers formula, it all starts with discovering what the seller's true motivation is uncovering the layers of the motivation so you can truly be a solution for that seller's problem. And then it moves on to the web formula understanding where in buyers buy and truly developing a skillset that you know what the actual ARV is, where you're conservative on that number, understanding how to account for the rehab numbers, being aggressive on that and identifying where your in buyers will buy that deal and providing them with great deals. These are the pillars of what makes a great wholesaler and what inevitably turns out to be a smooth transaction with sellers.

Speaker 1: 17:24

If it's built on manipulation and lies, would you get results? I don't deny that. Will you get results? I don't deny that. I don't deny that you lying in and skewing the mindset of a seller can work. We see it and I've seen it in the past decade throughout the industry. I love seeing the comments that say I've been using the fake finance department for years and it works. I'm not denying that.

Speaker 1: 17:56

What I'm denying is the fact that it's not what you should be doing and the fact that it's being leveraged against us and our rights that we have right now, that are being abused by ourselves, are inevitably going to be taken away from us through the regulations. Look at states like Oregon. Now we're forcing wholesalers to do background checks, get fingerprints, be a registered wholesaler in the state of Oregon. Why do you think that is? It's so they can come after you if you abuse the rules and the regulations that they bring down on wholesalers. It's not just because they want to know your background. It's not because they just want to have your fingerprints. It's because they want to hold you to a higher standard, just like they do real estate agents. This is the facts that we're staring at now as an industry, and we have brought this upon ourselves. When we continue to do these actions and manipulate sellers and force them into situations that they should never be in, we are the real estate professionals. When are we going to start acting like it? Just because we know how to use the tools doesn't mean that we have the right to abuse them and use them at our will. That is when things get taken away from us, and that's exactly what's happening today.

Speaker 1: 19:21

Now, the other thing I want to talk about is on the buyer side, when we go to dispositions. See, this is a whole different type of having ethics as a wholesaler. There's times where you have a deal and you are dealing with someone that might not be as experienced as you, that's looking to purchase the property. If you are manipulating the ARV and saying that the property could sell more to manufacture a deal, saying that the rehab is less, maybe it's a virtual buyer. Maybe you're even getting a contractor to go out there and write up a bid for less than it actually needs to be so you can move your deal. These are all things that I have seen rampant throughout our industry. Manipulating buyers happens just as much as manipulating sellers. That's why I also have never believed in bidding wars. When it comes to dispositions, set your price first come, first serve. That serves your buyer base.

Speaker 1: 20:22

The people that you want to take care of on the disposition side are those end buyers, so they can buy multiple upon multiple properties from you. If you are always trying to force them into paying you more so you can capitalize on that one deal, you're short-sighted and it's eventually going to catch up to you and cost you in the end. Are end buyers replaceable? Sure, but do you always want to be seeking and searching for the next end buyer for your wholesale transaction? No, that's a very miserable and not sustainable wholesale model. Realistically, you should already know who you want to send your deal to. During the acquisitions phase you should understand this if you're using the web formula, because it's literally where the end buyers buy you should know exactly where that deal is and what they're going to purchase it for, because you have the experience of working with them and knowing exactly what they're looking for.

Speaker 1: 21:25

The next thing is title companies. This is extremely important that we make sure that when we're dealing with our title companies real estate agents, vendors inside of this business that we are taking care of them and not asking them to do things that, realistically, they shouldn't be doing. For example, when a title company needs to clear title, a lot of times some title companies will help you out, some won't. They are taking on liability to clear title. A lot of times, some title companies will help you out, some won't. They are taking on liability to clear title and make sure that this deal gets closed. They are facilitating that transaction. We need to be involved in that process. Do not blame things on the title company. Do not sit there and allow your transaction to be held up by either the closing attorney or the title company. Blame them on that. Again, these are things that I have seen over the course of time where, as wholesalers, we lack the knowledge and understanding of what we should be doing and how we should be participating inside these transactions. It's why, at this point, for almost 600 straight days, I've been able to come up with content on this YouTube channel Now over 3,000 videos. There's always things that we need to be working on and growing to get better. Ultimately, the ethics inside of our industry need to improve. Ultimately, the ethics inside of our industry need to improve.

Speaker 1: 22:53

This starts with how we do acquisitions, how we talk to sellers. What are we actually seeking? Are we seeking the best price? Are we seeking to gouge them and get them under contract or just get the property under contract? Are we actually seeking what their motivation is and how we can help them? And then, on the flip side, are we bringing great deals to our end buyers and showing them the true numbers, conservative numbers? Let's be real. When was the last time an end buyer reached out to you and said man, when you sold me this deal, I thought I was going to make $40,000 profit, but honestly, you were conservative on your numbers. I made $50,000 profit. It's probably not happening very often. If it is, then you're doing the right thing during dispositions. And then when it comes to the unbiased third parties the realtors, the title companies, the lenders don't abuse them, because they're a part of the transaction. Help them, show them the way. It's your responsibility.